Oct. 25 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA faces a test of its 18-month-old assertion that defaults have peaked as growth stagnates in a Spanish economy that still accounts for about 60 percent of its loan book.

“Maybe they can keep this line going that bad loans have peaked for a bit longer but we all know things have got worse,” said David Moss, director of European equities at London-based F&C Investments. “They may have been better lenders than other Spanish banks but they can’t escape the market they’re in.”

Spain’s second-biggest bank has brought down its bad-loans ratio in the country after Chief Operating Officer Angel Cano said in April 2010 that asset quality was probably going to be “stable from now on.” While Chairman Francisco Gonzalez reiterated in February that the “worst was over” for BBVA, a deteriorating economic outlook will push up bad loans, said Moss, who holds the bank’s shares as part of the 8.5 billion euros ($11.8 billion) in non-U.K. equities he manages at F&C.

BBVA may say third-quarter earnings dropped 24 percent to 861 million euros when it publishes results tomorrow before the market opens, according to the average estimate in a Bloomberg survey of five analysts.

The bank was among Spanish lenders that had their debt ratings cut on Oct. 11 by Standard & Poor’s, which cited concerns about a “dimming” outlook for the economy and the prospect that bad loans will keep accumulating during 2012 and potentially into 2013.